Foreign investors are still buying U.S. assets in 2025 — but there is one catch

Foreign investors are continuing to acquire U.S. stocks and bonds in 2025, but are increasingly hedging their exposure to the dollar, according to Deutsche Bank. This shift occurs as U.S. equity markets face stiff competition and underperformance from global counterparts in Europe, China, and South Korea, which have seen widening outperformance since the start of the year after two years of U.S. market leadership.

Analysis

According to Deutsche Bank, foreign investors have maintained their appetite for U.S. stocks and bonds into 2025, but with a significant strategic shift: an increasing use of currency hedges against the U.S. dollar. This change in behavior coincides with a notable shift in global equity market performance. After a two-year period of undisputed leadership driven by its dominance in artificial intelligence, the U.S. market is now underperforming several international counterparts. Since the start of 2025, indices such as Germany's DAX, Hong Kong's Hang Seng, and South Korea's KOSPI have demonstrated widening outperformance. This dynamic suggests that while foreign capital still sees value in U.S. assets, conviction in the U.S. dollar's continued strength is waning, prompting a move to insulate returns from potential currency depreciation.

Key Decisions for Investors

• Given the trend of foreign investors hedging their U.S. dollar exposure, holders of significant U.S. assets should review their own currency risk and consider implementing hedging strategies to protect against potential dollar weakness.
• The noted outperformance of indices in Europe and Asia, including the DAX, Hang Seng, and KOSPI, warrants a re-evaluation of geographic asset allocation, with potential consideration for increasing exposure to non-U.S. equities to capitalize on the current market rotation.
• Investors should closely monitor the relative performance of U.S. versus international equity indices and the U.S. Dollar Index (DXY) to determine if this is a short-term tactical shift or the beginning of a more sustained trend away from U.S. market leadership.